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ESG CRITERIA INCREASINGLY SIGNIFICANT AS THE DOMINANT DRIVERS FOR INFRASTRUCTURE INVESTMENTS

Environmental, social (or sustainable) and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.

The importance of such standards as critical criteria influencing key decisions made by investors in energy infrastructure assets has been apparent for a considerable time. With growing climate change risk awareness among institutional investors, however, ESG issues are assuming an ever more dominant place in the infrastructure investment industry. ESG criteria certainly now drive the monitoring and evaluation processes adopted by asset managers of both listed and unlisted infrastructure assets to a considerable extent. Whether to invest or divest, or whether to maintain or reduce exposure to a particular energy asset class, investors are increasingly evaluating their decisions against industry wide-ESG benchmarks set by regulators, rating agencies and business academics.  

Setting an appropriate and fit for purpose ESG policy is a challenge for all businesses, but especially so while the taxonomy of corporate issues falling within ESG grows ever broader. ESG needs to be aligned with the mission statement of the energy asset owner and so also embedded in its culture and values. However, arguably this is especially difficult for energy infrastructure owners to achieve. For example, the majority of senior executives in the energy industry tend to be male, drawn either from an engineering or financial background and with similar career profiles. There is certainly a marked absence of female senior executives. Even though all the evidence is that boards containing a better gender balance make more sustainable long term decisions and are more effective in managing risks, there are relatively few examples of well-balanced boards in the energy and infrastructure industry. Without appropriate adjustment, this presents an immediate adverse ESG mark.

An energy infrastructure asset may be owned by a publicly listed company or, more commonly, by a private entity (company or partnership). Whatever the ownership structure, the ultimate asset owner is likely to have complex stakeholder relationships to manage, including investors (public (institutional) or private (retail), employees, regulators, suppliers and contract counter-parties.  Managing these relationships, up, down and sideways, takes considerable skill and effort. Moreover, the scrutiny of the asset owner’s ESG performance by rating agencies, investment analysts, financial journalists and others is likely to present it with many communications challenges, both internal and external. Finding the most effective and impactful language to articulate the asset owner’s key ESG messages is unlikely to be easy given the different audiences it needs to satisfy.

Wind farms, solar parks, energy storage facilities, power plants, electricity grids, oil & gas facilities all have differing environmental footprints. The basis on which their individual performance is assessed needs, rightly, to be scrutinised against a range of criteria. ESG provides an increasingly important handrail to guide such assessment. It is certainly more frequently quoted and senior executives are increasingly aware of its significance in their management decisions.

The Prospect Law and Prospect Advisory team has substantial experience of raising investment capital for energy infrastructure assets, where ESG issues have been at the forefront of the decision criteria used by the equity and debt capital providers ultimately committing funding to the asset. Overall ESG is certainly likely to remain a major feature of energy infrastructure transactions in the future.

About the Author

Mark Vickers is an experienced public and private sector complex risk consultant, with a focus on financing projects in energy and infrastructure. Mark was previously a commercial & investment risk advisor at The Crown Estate, focused on new marine energy technology investments in UK waters, such as wave & tidal power, floating wind turbines and offshore transmission grids. With qualifications in law, accounting, finance and risk, Mark has worked in a range of major banks, private equity funds, corporates and professional advisory firms.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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DIGEST OF UK ENERGY STATISTICS: LOW-CARBON SOURCES OF ENERGY

The new edition of the Digest of UK Energy Statistics (DUKES) for 2019, published by the Department for Business, Energy and Industrial Strategy (BEIS) on 25 July 2019 showed that in 2018, and despite outages, nuclear retained its place as the largest source of low-carbon electricity. This continued the trend from 2017, when it contributed 20.8% of all electricity generated, and low-carbon sources of electricity generated 50.1% of all power in the UK.

This is consistent with the findings reported in the Energy Trends: March 2019 Special Feature Article, which stated that in 2018 nuclear accounted for 18.7% of total electricity supplied to the grid, with fossil fuels supplying 47.7% and renewables 33.6%. The authors of this special report noted that the UK’s energy mix has changed completely since 1995, when nuclear contributed 25.3% and fossil fuels 72.5%.

The reports constitute recognition of the continuing need for, and contribution from, nuclear energy as a low-carbon ‘always available’ fuel and a vital part of the energy mix, essential to the UK’s commitment to net zero carbon emissions by 2050.

However, they also note that seven of the eight existing nuclear plants are due to be retired by 2030, and that despite the plans for plants at Sizewell and Bradwell, only the new reactors at Hinkley Point C are presently under construction. More needs to be done to reduce the costs of both construction and decommissioning. It is therefore significant that BEIS launched a new consultation on 23 July 2019 on a Regulated Asset Base model for nuclear financing.

About the Author

William Wilson is a specialist environmental, regulatory and nuclear lawyer with over 25 years experience in government, private practice and consultancy. He worked as a senior lawyer at the UK Department of the Environment/DETR/Defra, and helped to build up the environmental and nuclear practices at another major law firm. William has experience of all aspects of environmental law, including water, waste, air quality and industrial emissions, REACH and chemicals regulation, environmental protection, environmental permitting, litigation, legislative drafting, managing primary legislation, negotiating EU Directives and drafting secondary legislation.

Prospect Group is an award winning Multi-Disciplinary Practice combining the legal services of Prospect Law with the consultancy services of Prospect Advisory. Our lawyers and technical experts provide a single point of reference for clients involved in energy, infrastructure and other development projects.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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EPR PROJECTS: WILL HINKLEY POINT C MEET ITS MILESTONES?

China recently released a positive update on the second EPR reactor at Taishan, some 90 miles to the west of Hong Kong, with the announcement that it had achieved criticality. This follows on from the first unit becoming operational in December 2018, which marked a world first for the design.

Why is this important?

The EPR design (originally the European Pressurised Water Reactor) is under construction at Olkiluoto in Finland, Flamanville in France and, of course, Hinkley Point in Somerset.

The Finnish and French projects have been subject to significant delays: Olkiluoto 3 construction began in 2005 and was initially due to be commissioned in 2009. However, fuel loading is expected in the near future and power production is expected to start early next year, concluding a 15 year project. In France, Flamanville 3 construction began at the end of 2007 and was due to become operational in 2012. Nevertheless, fuel loading is now due towards the end of this year, 13 years later.

Similarly, construction of the Taishan EPR units began in 2009 and 2010 respectively and were supposed to complete in less than four years each, instead becoming 10-year projects. Therefore, while there have been significant improvements in construction schedules, delays and cost overruns have still been significant.

The nuclear industry is not known for delivering big projects to time and cost. Each of these ventures has had its own reasons for delays and cost overruns.

How does this reflect on Hinkley Point C?

Construction of the two EPRs here officially started in December 2018, following significant groundwork preparation, and the first reactor is expected to be connected to the grid in 2026. This appears to be a more realistic 7-8 year project timescale than the overly ambitious four-years of Taishan and it is to be expected that EDF will apply the learning from its other projects to Hinkley Point C.

Hinkley Point C itself was on track to achieve “Jalon Zero” at the end of May; this being a French term meaning “milestone zero”. This was intended to mark the final pour of concrete to construct the nuclear island on which the reactors will be built, which required some 5.6 million m3 of rock to be excavated and 9,800m3 of concrete to be poured.

Only time will tell if Hinkley Point C will achieve all of its milestones and budgets. In future articles, we will look more closely at the reasons for the cost and schedule overruns inherent in this family of EPRs.

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way. 

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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CANCELLATION OF INTENT TO BUILD ABWR SITE AT WYLFA: POSSIBLE IMPACT ON THE NUCLEAR INDUSTRY

After spending some £2bn on pre-construction and licencing activities, the cancellation by Hitachi of the intent to build an ABWR site at Wylfa is disappointing and worrying for the industry.  The implication and shock-wave consequences are huge, for short-term employment and, more importantly, sweeping away the underpinning need for the development of nuclear skills for the future.

The Government must now reassess its energy security strategy AND its commitment to financially supporting large infrastructure projects.  Nuclear is ideal in providing base-load power certainty and consequently provides a guaranteed 24/7 income stream to repay any loan required for construction.  It is fair to ask why HS2 is being supported by public money, whilst yet the energy sector is considered sufficiently robust that Government backed loans are deemed unacceptable.  Construction of nuclear power is financially supported by central governments in other countries, so why should the UK be any different?

The implications for Research and Development into nuclear compatible materials, sophisticated manufacturing, inspection techniques, 21st century control systems, and nuclear fuel technologies are very serious.  Decommissioning will not fill the gap.

What now for Sizewell C and Bradwell: can we look forward to similar announcements?

Yes, I hear the cry that SMR’s will be supported and that they are cheaper and quicker to build and install.  Nevertheless, this ignores the key fact, namely that they are (currently) an unproven and unlicensed technology with many unresolved issues, including those related to spent fuel conditioning and management. The safety of having multiple reactors controlled from a single work-station location also has to be thought through.  Also, the time necessary to build 12 SMR’s, in parallel on the same congested site, will be at least as long as that needed to build a large conventional station.

Although Ministers are being all consumed by BREXIT, Parliament needs to issue an early restatement of energy policy and its commitment to nuclear power.

About the Author

John Ireland is an internationally experienced energy specialist and senior business executive skilled in the development, negotiation, and management of businesses and technically complex contracts within both the Government and private sectors.  John, a Chartered Engineer and Fellow of the Institution of Chemical Engineers, has been Chief Engineer advising clients on nuclear new build in Romania and investigating opportunities in Saudi Arabia, Jordan and Turkey, and Project Manager for the treatment and management of toxic and radio-toxic chemical wastes in the UK, Japan, and the EU.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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THE ENERGY STORAGE QUESTION: SPINNING FLYWHEELS, PUMPED HYDRO AND COMPRESSED AIR

Introduction:

E-ON recently completed a 10MW lithium iron battery, designed to hold roughly the same amount of power as 100 family cars, at the 30MW Blackburn Meadows biomass plant near Sheffield. (https://www.eonenergy.com/about-eon/media-centre/eon-completes-uk-first-battery-installation-at-blackburn-meadows-biomass-power-plant/).

The unit has been hailed as a breakthrough in the switch towards greener energy and the development of energy storage solutions capable of holding energy generated by wind farms and gas power stations, for release in times of excess demand.

The Issue of Energy Storage:

The National Grid is tasked with producing enough energy to meet supply. Excess energy from one source, such as solar, will prompt the grid’s operators to switch off another.

Currently, renewable energy can only make intermittent contributions to the grid’s output. As the sun does not shine 24/7 and some days are windier than others, the renewables sector eagerly awaits technology capable of storing energy.

There have been numerous suggestions as to how the energy storage conundrum may be solved.

Spinning Flywheels:

Through storage of kinetic energy, a flywheel operates like a mechanical battery, with some designs now able to spin at rates of up to 60,000 revolutions per minute. Although early models were generally very heavy, modern carbon fibre flywheels have the ability to contain twenty times more energy then a steel wheel (http://www.economist.com/node/21540386).

A spinning flywheel will speed up when it receives electrical energy, and slow when there is a need to release the energy that it stores, at which point the kinetic energy will be transferred back into electrical energy.

Flywheels are an efficient method of storing energy. Round Trip Efficiency is generally 85% – 90%, meaning a spinning flywheel only wastes a seventh of the energy it absorbs. In comparison, coal and gas generators are half as efficient.

Compressed Air:

Compressed Air Energy Storage is currently the second biggest method of energy storage, and works by transferring electrical energy into high pressure compressed air that is stored underground

In times of short supply, the compressed air will be heated and expanded to drive a turbine generator.

Currently there are two CAES plants in operation; one in Huntorf, Germany, and another in McIntosh, Alabama (http://www.powersouth.com/mcintosh_power_plant/compressed_air_energy).

Aquifers and porous rock are generally the ideal sites for CAES systems. Underground salt domes, which have long since been used to store natural gas, have also been used in the past, and are generally found at coastal sites where the potential to generate a lot of wind energy is high.

Geographically, there is thought to be good potential for CAES systems across Europe, including in Great Britain.

Pumped Hydro:

Pumped Hydroelectric Storage requires an upper and lower reservoir, and works by using excess energy to pump water to the higher reservoir, for storage as gravitational potential energy.

In times of short supply the water will be allowed to flow down to the lower point through a turbine and generator, transferring back to kinetic and then electrical energy in the process.

Whilst PHS schemes have been considered the best mass energy storage solution, they can only be installed at very specific terrains. The largest PHS scheme is currently near Dinorwig in Snowdonia National Park, one of four across the UK, and has become something of a tourist attraction (http://www.electricmountain.co.uk/Dinorwig-Power-Station).

It is thought that the hydroelectric facilities across Europe are now able to hold roughly 5% of the continent’s electrical generating capacity.

Conclusion:

Renewables provided nearly 30% of UK Energy Generation between April and June 2017, and it is thought that the UK will need to be able to store around 200GWh of electricity by 2020.

E-ON’s unit at Blackburn Meadows, designed to offer the grid energy in less then a second, comes as National Grid recently released a tender with a view to helping it manage supply and demand.

There is clearly as yet no clear answer to the energy storage question, but battery storage appears to have become very topical.

Other energy firms are developing similar projects to the one at Blackburn Meadows. EDF Energy is developing a 49MW plant at West Burton Power Station, Nottinghamshire, whilst Centrica are developing a project of the same size at a site in Barrow-on-Furness, Cumbria (https://www.centrica.com/news/centrica-start-construction-new-battery-storage-facility-roosecote).

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Adam Mikula on 020 7947 5354 or by email on: adm@prospectlaw.co.uk.

For a PDF of this blog click here

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CHRIS KAYE JOINS PROSPECT’S NUCLEAR TEAM

Prospect is pleased to announce the further development of its multi-disciplinary infrastructure practice through Chris Kaye joining the firm as an expert on the negotiation and management of multi-billion pound infrastructure projects, particularly in the nuclear sector. On behalf of the Department of Energy, Chris led the review of Hinkley Point C’s waste and decommissioning plans, providing advice to the Secretary of State on the approvability of the power station’s Funded Decommissioning Programme, and liaising with private and public sector advisory bodies.

Prospect remains the only regulated firm to offer combined legal and technical services to clients in the infrastructure sector and its position is further strengthened by the addition of Chris Kaye.

Chris has over 40 years experience in negotiating, managing, and assuring the performance of multi-billion pound strategically and technically complex contracts within Government and private sectors. From 2006 to 2016 and prior to joining Prospect Group, Chris was a function head of a major UK Non-Departmental Public Body, where he was responsible for assurance and oversight of the private sector nuclear operator’s decommissioning strategy, planning and costing where the Government has an interest in its funding and risks. This work was primarily directed at assuring the robustness of detailed plans for decommissioning the UK’s most modern nuclear power station fleet and associated spent fuel liabilities, with a total value of c. $25bn.

Chris has also led the assurance, on behalf of the UK’s Department of Energy, of all three of the UK’s new nuclear power plants’ decommissioning plans and cost estimates, in order to support the UK Government’s decision on whether or not to approve the operator’s liabilities funding arrangements for this first of a kind development. This included Hinkley Point C.

Outside the UK, Chris also led assurance reviews of Canadian, Swedish and Swiss nuclear facilities’ decommissioning plans on behalf of their respective governments and has provided consultancy advice to the Taiwanese and Chinese governments and private enterprises. Prior to 2006, Chris worked as an independent consultant on various technical assignments for major clients including the UK Atomic Energy Authority, Arthur D Little and the UK Government, significantly influencing the eventual decision to create the Nuclear Decommissioning Authority (NDA).

Chris also participated in reviews of private sector companies’ performance as part of the UK Business Excellence Award process utilising the European Foundation for Quality Management Business Excellence model. He has also worked in a variety of roles in the UK electricity supply industry. Initially covering waste management R&D and policy, for 12 years Chris led the negotiation and management of all contracts for the supply of uranium, new fuel, and spent fuel management services for the UK’s private sector nuclear fleet. Chris has also been a ‘high risk projects’ reviewer for the UK Cabinet Office Infrastructure and Projects Authority, participating in major government infrastructure projects in overseas construction, justice, immigration, rail franchise and national emergency planning. He is a Member of the Chartered Institute of Purchasing & Supply.

Prospect Law and Prospect Advisory provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.       

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

For a PDF of this blog click here

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“THE BIGGEST HOUSE BUILDING PROGRAMME SINCE THE 1970s?”

George Osborne’s Autumn budget statement has this week pledged £2billion to the Housing Budget, more then twice the amount currently earmarked, as part of a drive to create a more sustainable housing market by building 400,000 more affordable homes by 2020.

A pilot scheme allowing housing association tenants the ‘right to buy’ has gone live, and many of the restrictions on shared ownership are now also due to be lifted. An increase in the availability of loans for small building firms has also been promised.

With house building currently at a six year low, Osborne’s approach also incorporates significant planning reforms, intended to release enough public land to build 160,000 homes and allow vacant plots of commercial land to be used for the building of starter homes, to be offered to first time buyers aged under 40 for 20% less then their market price.

The statement has provoked a reaction in the stock market, with shares in housebuilders such as Persimmon and Taylor Wimpey significantly rising upon news of the announcement. The former saw a rise of 6pc on the morning of 25th November, although this rise has since eased to 2.1pc more then its pre announcement level.

Despite their apparent proactivity, the government clearly has a long way to go before it can properly convince the British public of it ability to cure the current shortage of housing land supply. House prices have already risen 15% since 2010 and critics of this statement have questioned the likelihood of Osborne’s vision for affordable housing ever coming true, with some also pointing to the apparent failures of the ‘help to buy’ scheme, which has come into criticism for extending to less then 4% of the 2.4 million property transactions in the past 2 years.

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resources projects in the UK and internationally.

For more information, please contact Edmund Robb on 07930 397531, or by email on: er@prospectlaw.co.uk.

For a PDF of this blog click here

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THE NATIONAL INFRASTRUCTURE COMMISSION

Chancellor George Osborne has overseen the creation of a National Infrastructure Commission.

The Commission came into existence on 5th October and will supervise the spending of £100billion on roads, rail lines, energy and flood defenses. It will be headed by a team of seven Commissioners and has been tasked with putting forward full, impartial recommendations on how money should be spent on economic infrastructure at the beginning of each parliament.

The Commission’s plans will look at the infrastructure the UK might need in 30 years time. The intention is for the Commission to publish proposals after extensive public consultations and it is hoped that its plans will go some way towards helping safeguard future investment in the national economy and allowing the UK to compete with its Western European rivals.

Spending on infrastructure has fallen 5.6% since 2010 and George Osborne has previously commented that the UK’s reputation for world leading infrastructure had ‘slipped’. Currently only in existence provisionally, it is expected that the Commission will be given a statutory grounding in upcoming legislation.

Criticism of UK infrastructure spending emphasizes, amongst other things, disproportionate investment in the Greater London area.

Whatever strategies the Commission proposes, it is extremely hard to envisage it ever appeasing all sides. Many have already expressed concern that the creation of this Commission could exacerbate inequality and hamper investment in the North.

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resources projects in the UK and internationally.

For more information, please contact Edmund Robb on 07930 397531, or by email on: er@prospectlaw.co.uk.

For a PDF of this blog click here